When are the Europeans going to get their act together?
Well the answer is: They are getting there! Inexorably and slowly – above all slowly.
Is it a secret conspiracy?
Most certainly! Some would call it:
Organisation and cooperation on an interdepartmental and cross-border level while fully respecting the national sovereignty of the historical traditions of all members and associates of the European Union in order to in due course coordinate the national instruments and relevant institutions for the furtherance of economic prosperity and enhance financial stability throughout the sphere of influence of the members of the original Rome treaty and later integrated identities and applicants.
You wanted the short version didn’t you? Translated into American English:
Let’s gang up on the banks and be really mean to them!
How do they keep it a secret? Well they hide it in plain view – under a truckload of paper! First of all they translate everything into 22 different languages – excuse me: 22 truckloads of paper – and formulate themselves as above – and elaborate on that.
The Russian spies are handed the copy in Latvian – no need to encode, as no sane Latvian speaker would ever dream of living in Russia given an alternative. The Americans won’t understand as long as there is no word under three syllables on the first page (two pages for good measure) and the Chinese are not remotely interested.
Will the banks not get whiff of it? Very unlikely! They have their focus the wrong place: On manipulating the politicians – and two thirds of the politicians are either old communists or they just hate Muslims, Jew and Christians and want to ruthlessly defend their version of apple pie. Of the remaining third – two thirds are simply too thick to get it and the remaining tenth was the one that started the civil servants in the first place. Furthermore: Could you imagine a bank employing a qualified academic civil servant? Not one banker would get through f.i. the French. Frankly I’ve wondered listening to bank “economists” how they got their degree – and I’m Ecole Superieur nowhere near the sharpest tool in the kit.
No the secret is more than safe – actually it wasn’t before late 2010 I got the vaguest hunch something was up and the commissions press release is dated September 23rd 2009:
Titled: Commission adopts legislative proposals to strengthen financial supervision in Europe
(as I said: The banks are in for it!) Even headline formulation is certain to make any journalist fall asleep instantaneously.
They set up two committees (certain to make every business man cringe) which are actually mergers of several other older committees that obviously – in the light of the Lehman Brothers meltdown – didn’t work. That’s the way to kill a committee – set up another!
- a European Systemic Risk Board (ESRB) to monitor and assess risks to the stability of the financial system as a whole (“macro-prudential supervision”). The ESRB will provide early warning of systemic risks that may be building up and, where necessary, recommendations for action to deal with these risks.
- a European System of Financial Supervisors (ESFS) for the supervision of individual financial institutions (“micro-prudential supervision”), consisting of a network of national financial supervisors working in tandem with new European Supervisory Authorities, created by the transformation of existing Committees for the banking securities and insurance and occupational pensions sectors. There will be a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority (EIOPA), and a European Securities and Markets Authority (ESMA).
Sorry that needs clarification!
The ESRB is responsible for the oversight of the financial system to prevent systemic risks to financial stability –and prevent failures of the financial systems spreading into the real economy. In layman’s terms: How to prevent bank credit squeezes from killing off sound businesses and evicting people from their homes on a large scale. The macro-economic side of things.
The ESFS is actually the coordinating organ for the national bank inspections – whatever weird shape or form that might have (it a constant interdepartmental struggle if the bank inspection should defer to the independent CB’s or agencies under government ministries). They deal with inspection and sets standards for:
a) Banks: European Banking Authority (EBA)
b) Insurance: European Insurance and Occupational Pensions Authority (EIOPA)
c) Pension funds and schemes: European Insurance and Occupational Pensions Authority (EIOPA)
d) Securities and Markets: European Securities Authority (ESA)
The micro–economic side.
The ESRB is really the European club for CB CEO’s. The ESFS has a steering committee – whose members I’ve not been able to track down.
Is this structure working?
Most certainly: It is up and running plus hitting on all cylinders.
Let me give you some examples you may or may not have heard of:
1) There has been a lot of talk about a Tobin-tax on financial transactions – something the banks have done their utmost to block and hinder. So far they have succeeded; but it is indeed a hollow victory!
Everybody has overlooked the principal aim of the proposal: To control and curb the rampant speculation of the banks – in so far as the tax had worked according to intention there would not have been any revenue worth mentioning.
You most clearly saw it in the Greek debacle where there were great fights over what a “credit event” was with respect to the different Credit Default Swaps – and the under which national legislation the underlying sovereign bonds were issued.
The gross CDS position was about 70 bio. EUR; but the net was just 3-4 bio. EUR. All the rest were covers within covers within covers.
If ever there was a systemic risk that was one.
As the direct ESRB approach with a general Tobin-tax failed with all the usual sick arguments that the EU should not interfere with national taxation, and EU is just mean to banks, and the British will not accept whipped cream on their apple pie.
David Cameron actually stormed out from the meeting leaving Merkel and Sarkozy discussing how to deal with that.
What they came up with was clearly twofold:
a) The British will have to split up their banks – at least separating the detail banking sections into thoroughly independent units – I’ve already reported on that:
With appropriate links to the government White Paper.
b) To drive home the point home the British banks have been hit with the LIBOR scandal, which was no great surprise to any of my regular readers as I already back in 2011 had noticed that the Danish CB would not touch the corresponding CIBOR rate with a barge pole. A typical move for the ESFS – ESA subordinate organ.
Where do you think the intelligence came from? The British banks?
2) Back in late 2010 it became obvious that something within the pension community was afoot: The Danish bank inspection issued a demographic survival rate list to all pension funds in accordance with how Danes actually die, not how the pension funds thought they died twenty years ago.
A typical ESFS – EIOPA initiative.
Now most of the pension funds was seen to be unable to meet their obligations as people weren’t as kind to die timely as the pension funds had supposed – even the mighty ATP had to dig into their reserve funds to make both ends meet. This caused the ATP CEO Lars Rohde to